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Oil Price Spike Won’t Slash Consumer Goods Volume

We've been looking at scenarios on the total volume of goods pumped through the economy, based on current geopolitical developments: Our general view is that the impact of high oil prices isn't as dramatic as one would initially fear in terms of the VOLUME of goods consumed, as there are some upsides that come along with it. Assumption: Consumers spend less due to high prices at the pump. What we believe: Consumers will likely trade down to cheaper goods, but the VOLUME (*not price) of consumption is unlikely to be impacted significantly, except in big ticket (auto, homes, large ticket discretionary). After all, the largest driver of goods volumes are related to consumer staples. But, there are enough tax incentives and larger refunds this season that will offset drags. Immigration is probably the biggest drag on consumer volumes, as goods consumption volume is directly correlated with population, especially among younger families. Upside case: AI and data centers build out are unaffected by the surge in oil prices. This will continue as before. High sustained energy prices will drive investment in domestic energy and production. Energy related manufacturing and production are a significant portion of the US industrial economy, it should drive a lot of goods volumes. Military will need to replenish. Defense manufacturing is in the same league in terms of scale as the auto industry and more weapons/supplies means more domestic production. High oil and energy prices + limited global supplies will make global manufacturing less competitive than US domestic production, not just energy prices, but also raw materials that go into manufactured products. It could spur more domestic manufacturing growth, since we have plenty of untapped/unrefined resources to feed our industrial economy.